November 19, 2020

Last night, Wednesday, November 18, 2020, the IRS issued a Revenue Ruling stating regardless of when the PPP Loan Forgiveness is submitted and there is a reasonable expectation the forgiveness will occur in the future, then the correlating PPP Loan expenses are non-deductible for the 2020 tax year.

However, stimulus legislation currently stalled in both the House and Senate could override this Revenue Ruling and change these expenses to deductible.  According to discussions during the AICPA Town Hall on Thursday, November 19, 2020, it is unknown if the legislation will pass this year, next year, or at all.  Still, it seems “highly likely” the expenses will be deductible as noted by the program’s original intent.

For those waiting to file for forgiveness, you can file if your bank currently accepts forgiveness applications.  The remaining unknown will be the tax treatment of the expenses when we prepare the 2020 tax return in 2021.

The following are approaches to consider when filing 2020 tax returns when a PPP Loan was received until final guidance is issued:

• Wait and see
  • File an extension until additional guidance or legislation is available.
  • Pass through entities do not need to be concerned until March or April 2021 deadlines.
• File return and pay taxes
  • Assumes expenses paid with PPP funds will not be tax-deductible.
  • If this changes, the borrower can file an amended return.
• File return and deduct expenses
  • Contrary to current guidance.
  • Requires additional disclosures in your tax return.

There has still been no additional clarification on automatic forgiveness for loans under $150,000.

We will continue to monitor this issue and provide guidance when preparing your 2020 tax returns in early 2021.